Embention Sistemas Inteligentes (EPA:MLUAV) Is Achieving High Returns On Its Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Embention Sistemas Inteligentes (EPA:MLUAV) we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Embention Sistemas Inteligentes, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.35 = €5.5m ÷ (€20m - €3.9m) (Based on the trailing twelve months to December 2024).

So, Embention Sistemas Inteligentes has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 12%.

View our latest analysis for Embention Sistemas Inteligentes

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Embention Sistemas Inteligentes has performed in the past in other metrics, you can view this free graph of Embention Sistemas Inteligentes' past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from Embention Sistemas Inteligentes. Over the last four years, returns on capital employed have risen substantially to 35%. The amount of capital employed has increased too, by 282%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 19%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Embention Sistemas Inteligentes' ROCE

In summary, it's great to see that Embention Sistemas Inteligentes can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 41% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Embention Sistemas Inteligentes can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Embention Sistemas Inteligentes you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.